L&Q has completed the first issuance from its Euro Medium-Term Note (EMTN) programme, issuing £250m of 18-year secured bonds with a coupon of just two per cent – the group’s lowest to date.
The G15 landlord is only the fifth housing association to launch its own EMTN programme (picture: Getty)
The G15 landlord last month became only the fifth housing association to launch its own EMTN programme, publishing a £2.5bn prospectus as it looked to gain speedy access to the capital markets.
At the time, the programme received an A3 senior secured and unsecured rating from Moody’s, an A- from Standard & Poor’s in line with its unsecured issuer credit rating for L&Q, and an A+ from Fitch.
The group, which owns and/or manages more than 105,000 homes, marketed the 2038 bond to investors on Monday (12 October) and yesterday (13 October) priced the £250m issuance at 140 basis points (bps) over gilts, incurring no new issue premium.
This followed a book-building process that saw orders in excess of £890m – 3.56 times oversubscribed.
Sixty-five investors participated in the final order book, including “some new investors to L&Q in primary”, the group’s director of treasury Martin Watts said, reflecting “the strategic benefit of an investor engagement strategy”.
The bond marks L&Q’s first benchmark issuance in over two years and the lowest coupon the group has achieved to date. The next lowest, at 2.25 per cent, was achieved on the £250m, 12-year (2029) bond it issued in July 2017 as a dual tranche offering of sterling secured notes alongside a £250m 40-year (2057) bond, with a coupon payable at 2.75 per cent.
The group’s last issuance was in February 2018, when it completed another £500m dual tranche offering in the form of £250m 10-year and £250m 35-year bonds. The coupon and pricing were 2.625 per cent and gilts + 118bps for the 10-year bond, and 3.125 per cent and gilts + 135bps for the 35-year bond respectively.
Speaking to Social Housing last month, Mr Watts said the EMTN programme could provide a “versatile platform that increases [L&Q’s] financial agility”, in allowing the group to potentially issue secured or unsecured notes to the debt capital markets in a “very short time period”. Yesterday’s issuance was a fully secured sterling transaction.
At present, just four other housing associations have their own EMTN programmes.
Before L&Q, 37,000-home LiveWest was the latest to pursue the model when it established its £1bn secured platform in September 2019, from which it issued a £250m 24-year bond the following month.
Places for People (PfP), A2Dominion (A2D) and Clarion also have EMTN programmes, currently standing at £1bn, £3bn, and £2bn respectively, with PfP and A2D both issuing on an unsecured basis.
Other housing associations in the sector, including Platform Group, have also mulled launches of their own.
Bookrunners on the deal were MUFG (investor presentation), NatWest Markets (documentation, billing and delivery) and RBC Capital Markets (roadshow logistics).
Rothschild & Co acted as financial advisors to L&Q; valuation was from CBRE, while Allen & Overy was appointed as legal counsel to the joint bookrunners. L&Q’s legal advice was from Devonshires.
The bonds are secured over social housing assets with an asset cover test of EUV-SH/105 per cent + MV-ST/115 per cent.
Commenting on the bond issuance, Waqar Ahmed, group director of finance, said: “We are delighted with the successful placement of a further £250m of bonds, which has allowed us to meet our stated objectives whilst further strengthening our liquidity position.
“The extensive interest from, and take up by new and existing investors demonstrates the confidence of those investors in our commitment to our social purpose, vision and values that are supported by our strong credit fundamentals, effective governance and our ability to adapt.”
Mr Watts added: “L&Q were very clear on their objectives for this transaction – flexibility of maturity to maximise investor reach and to reposition L&Q in the market after a period since the last benchmark issuance, utilising the EMTN for speed of access with new numerical apportionment security pool.”
The fundraise comes after L&Q in June sold £300m of commercial paper under the Covid Corporate Financing Facility run by the Bank of England, becoming the first of two housing associations to borrow under the emergency funding facility and the only to date to borrow the full amount available to housing associations.